IN THE ITAT NAGPUR BENCH Archives - Tax Heal https://www.taxheal.com/tag/in-the-itat-nagpur-bench Complete Guide for Income Tax and GST in India Sat, 20 Jun 2026 12:40:59 +0000 en-US hourly 1 https://wordpress.org/?v=7.0 A bona fide claim on a complex, nascent legal issue like POEM does not justify a penalty for misreporting. https://www.taxheal.com/and-khettra-mohan-roy-accountant-member.html Sat, 20 Jun 2026 12:40:59 +0000 https://www.taxheal.com/?p=134207 A bona fide claim on a complex, nascent legal issue like POEM does not justify a penalty for misreporting. Issue Whether a penalty for “misreporting of income” under Section 270A(9)(a) can be mechanically levied at 200% when an assessee makes a bona fide, legally plausible claim in a revised return based on a complex and… Read More »

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A bona fide claim on a complex, nascent legal issue like POEM does not justify a penalty for misreporting.

Issue

  1. Whether a penalty for “misreporting of income” under Section 270A(9)(a) can be mechanically levied at 200% when an assessee makes a bona fide, legally plausible claim in a revised return based on a complex and newly introduced statutory concept (Place of Effective Management – POEM).

  2. Whether the non-filing of an appeal against a quantum assessment addition automatically establishes a deliberate concealment or misreporting of income for the purpose of triggering penalty provisions.

Facts

  • The Return Filings: For the Assessment Years (AY) 2017-18 and 2018-19, the assessee initially filed a return declaring an income of approximately ₹2.85 crores. Later, the assessee filed a revised return lowering the declared income to ₹36.01 lakhs.

  • The Deduction Claimed: The reduction of ₹2.49 crores in the revised return was claimed as a deduction on the ground that it represented income from OIHKL, a One-Person Company incorporated in Hong Kong in which the assessee was the sole shareholder.

  • The Quantum Assessment: The Assessing Officer (AO) added back the ₹2.49 crores, ruling that the global income of a resident is taxable in India under Section 6. The total income was assessed at the original ₹2.85 crores. The assessee chose not to appeal this quantum addition.

  • Penalty Imposition: The AO subsequently initiated penalty proceedings under Section 274 read with Section 270A. Rejecting the assessee’s explanations, the AO levied a 200% penalty on the differential tax, asserting that the non-filing of an appeal against the quantum addition amounted to an admission of misreporting/concealment.

  • Assessee’s Defense: The assessee explained that the claim was based on the “Place of Effective Management” (POEM) rules under Section 6(3), which were newly brought into effect on April 1, 2017. The position was taken based on interpretations of nascent laws and accompanying CBDT guidelines (Circular No. 8 of 2017).

Decision

  • On Deceptive Intent vs. Bona Fide Explanation: Decided in favor of the assessee. The Court/Tribunal observed that the POEM framework was complex, highly debatable, and structurally nascent during AY 2017-18. The explanation offered by the assessee arose from a legally plausible interpretation. Merely because a complex legal claim is rejected during regular assessment does not mean the taxpayer acted with contumacious conduct, deliberate suppression, or misrepresentation under Section 270A(9)(a).

  • On Accepting Quantum Additions: Decided in favor of the assessee. The AO’s conclusion—that because the assessee did not file an appeal against the assessment order, they automatically accepted the charge of deliberate concealment—is legally tenuous and unsustainable. Assessment and penalty proceedings are distinct; a taxpayer may accept a tax addition to avoid litigation without admitting to tax fraud. The 200% penalty was quashed.

Key Takeaways

  • Rejection of Claim $\neq$ Misreporting: There is a distinct legal boundary between making an aggressive or unaccepted statutory claim and indulging in “misreporting.” If a taxpayer provides a full disclosure of facts and a bona fide explanation, no penalty under Section 270A can be sustained merely because the AO disagrees with the tax treatment.

  • Nascent Laws Grant Leniency: When tax laws undergo major structural transformations (such as the introduction of POEM guidelines), errors in interpretation or claims made on highly debatable grounds are treated as bona fide mistakes rather than deliberate tax evasion.

  • Quantum Acceptance is Not a Guilt Admission: Choosing not to appeal a quantum addition does not bar a taxpayer from fighting a penalty notice. The Revenue cannot use the absence of a quantum appeal as a structural shortcut to prove “misreporting” or “concealment.”

IN THE ITAT NAGPUR BENCH
Ajay Maheshwari
v.
ACIT
Pawan Singh, Judicial Member
and KHETTRA MOHAN ROY, Accountant Member
IT Appeal Nos. 222 and 223 (NAG) of 2025
[Assessment years 2017-18 and 2018-19]
MAY  19, 2026
Ajay Maheshwari for the Appellant. Surjit Kumar Saha, Sr. DR for the Respondent.
ORDER
Khettra Mohan Roy, Accountant Member.- These appeals filed by the same assessee are directed against separate orders of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi, (for short, “CIT(A)”), both dated 07/02/2025 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which are emanating from different penalty orders passed u/s. 270A of the Act dated 12.07.2021 & 04.09.2021 for the Assessment Years 2017-18 & 2018-19 respectively.
2. Since the facts and issues involved in both the appeals are identical, they were clubbed together, heard conjointly, and are being disposed of by this consolidated order. For the sake of convenience, the facts are culled out from ITA No. 222/Nag/2025.
3. The effective issue involved in the present appeal relates to levy of penalty of Rs. 1,79,64,198/- u/s. 270A of the Act in respect of addition of Rs.2,48,83,196/- made by the Assessing Officer consequent to the assessment completed u/s. 143(3) of the Act.
4. Originally, the assessee had e-filed return of income for AY 2017-18 on 01.11.2017 declaring total income of Rs. 2,84,83,930/-, which was revised on 31.03.2019 u/s. 139(5) income at Rs. 36,00,740/-. Case of the assessee was selected for scrutiny under CASS and assessment was completed u/s. 143(3) making addition of Rs. 2,48,83,196/- assessing the income at Rs. 2,84,83,930/-. During the course of assessment proceedings, Ld. AO noted that assessee claimed deduction of income of Rs. 2,48,83,196/- received from Oasis International HK Ltd. incorporated at Hong Kong, which is a one person company and the assessee being the only share holder. The Ld. AO added the same to the total income of the assessee considering that global income of a resident is taxable u/s. 6 of the Act. Accordingly, penalty proceedings u/s. 274 r.w.s. 270A were initiated. In response to the show-cause notice issued u/s. 270A, assessee furnished explanations which did not find favour with the Ld. AO. According to the Ld. AO, assessee under-reported his income hence, his case is fit for levy of penalty u/s. 270A of the Act. Ld. AO further observed that assessee has not filed appeal against the above disallowance/addition which shows that assessee accepted his mistake. Consequently, Ld. AO levied penalty of Rs. 1,79,64,198/- u/s. 270A of the Act for under-reporting in consequence of the misreporting of income u/s. 270A(9)(a) of the Act towards misrepresentation or suppression of fact @200% on differential tax of Rs. 89,82,099/-.
5. Aggrieved with the penalty order, assessee carried the matter to the Ld. CIT(A), who after considering the facts and submissions of the assessee, held that assessee has revised the original return intentionally at the very last movement and reduced the total taxable income to Rs. 36,00,740/- resulting in refund of Rs. 95,53,990/- which clearly comes under the purview of section 270A(9)(a) of the Act. Finally, Ld. CIT(A) held that AO has rightly imposed penalty of Rs. 1,79,64,198/- u/s. 270A of the Act @ 200%. Accordingly, appeal of the assessee was dismissed. Further aggrieved, assessee is in appeal before this Tribunal.
6. The assessee, in person appeared and submitted that Ld. AO erred in levying penalty u/s 270A of the Act by treating the case as one of “misreporting of income” attracting penalty @ 200%. The issue involved is purely a legal and interpretational issue regarding taxability of income received from M/s. Oasis International HK Ltd. and applicability of the provisions relating to Place of Effective Management (POEM). Assessee had made full and true disclosure of all material facts during the course of assessment proceedings. The income received from M/s. Oasis International HK Ltd., the shareholding pattern, nature of receipts and supporting documents were duly furnished before the Ld. AO. Hence, there was neither suppression of facts nor furnishing false particulars. Mere disallowance of a claim or difference of opinion regarding taxability of income does not automatically lead to penalty u/s 270A. The assessee had raised a bona fide claim based on a plausible interpretation of law and CBDT Circular No. 08 of 2017 dated 23.02.2017 clarifying POEM provisions. He further submitted that CBDT itself clarified that POEM provisions shall not apply to a foreign company having turnover or gross receipts of Rs. 50 crores or less in a financial year. The assessee had entertained a bona fide belief that income received from M/s. Oasis International HK Ltd. was not taxable in India considering the said clarification. The ingredients of “misreporting of income” as contemplated under section 270A(9) are absent in the present case. There is no allegation of misrepresentation or suppression of facts; failure to record investments; claim of expenditure unsupported by evidence; recording of false entries; or failure to record receipts in books. Learned counsel further submitted that “misrepresentation of facts” implies deliberate furnishing of false facts, whereas “suppression of facts” implies intentional concealment of material information. In the present case, all primary facts were disclosed by the assessee and the addition was made merely on account of a different interpretation adopted by the Ld. AO. He further submitted that merely because assessee did not file appeal against the assessment order cannot be construed as admission of concealment or misreporting. Non-filing of appeal may be due to commercial expediency, litigation cost, or to buy peace of mind. The penalty proceedings are separate and independent from assessment proceedings. The addition made in assessment cannot ipso facto justify levy of penalty. At the highest, the case may fall under “under-reporting of income” u/s 270A(2), but not under “misreporting of income” u/s 270A(9). Therefore, levy of penalty @ 200% is unsustainable in law. Accordingly, penalty levied u/s 270A deserves to be deleted.
7. On the other hand, Ld. Departmental Representative (DR) submitted that assessee originally declared income of Rs. 2,84,83,930/- and subsequently revised the return reducing the income drastically to Rs. 36,00,740/- by claiming deduction of Rs. 2,48,83,196/- received from M/s. Oasis International HK Ltd. Such incorrect claim resulted in substantial under-reporting of income. Assessee was the sole shareholder of M/s. Oasis International HK Ltd. and was fully aware about the nature and taxability of the receipts. Despite such knowledge, the assessee claimed deduction without any legal basis. The CBDT Circular No. 08 of 2017 regarding POEM is not applicable to the facts of the present case. The Circular merely clarifies applicability of POEM provisions to foreign companies having turnover below Rs. 50 crores and does not exempt the assessee from taxability of income received from such entity. Assessee failed to establish any valid statutory provision under which deduction of Rs. 2,48,83,196/- was allowable. Therefore, the claim was not a bona fide legal claim but a deliberate attempt to evade tax liability. The conduct of the assessee clearly falls within the ambit of “misreporting of income” as envisaged under section 270A(9), particularly furnishing of inaccurate particulars and misrepresentation of taxable income. The assessee did not challenge the quantum addition before appellate authorities, thereby accepting the addition made by the Ld. AO. This clearly establishes that the claim made in the revised return was untenable. The Ld. AO has rightly recorded satisfaction regarding under-reporting and misreporting of income and levied penalty @ 200% in accordance with section 270A. The Ld. CIT(A), after appreciating the facts and legal position, rightly confirmed the penalty order. No interference is called for in the order of the Ld. CIT(A). Therefore, the order of the Ld. CIT(A) confirming penalty levied u/s 270A deserves to be upheld.
8. Upon careful consideration of the entire gamut of the dispute, it emerges that the Ld. AO was primarily influenced by the substantial reduction in income declared by the assessee in the revised return vis-a-vis the original return of income and proceeded on the premise that the revised return was filed merely as a device to claim a huge refund, which ultimately formed the very basis for initiation and imposition of penalty proceedings. It is observed that the assessee had relied upon the concept of Place of Effective Management (POEM) as envisaged under section 6(3) of the Act, brought into effect from 01.04.2017. The assessee had also placed reliance upon relevant CBDT Circulars clarifying and moderating the rigours of the said provisions having regard to the turnover /gross receipts of a one person company. Therefore, the stand adopted by the assessee in filing the revised return emanated from a debatable and legally complex issue requiring detailed examination in the light of statutory provisions and the binding nature of CBDT Circulars issued u/s. 119 of the Act which was nascent in A.Y. 2017-18. In our considered opinion, the explanation furnished by the assessee appears to be bona fide and legally plausible, arising out of an alleged error in the original return of income. Merely because such claim was not accepted during assessment proceedings, albeit in defiance of Circular No. 8 of 2017 dated 23.02.2017 no adverse inference can be mechanically drawn that the assessee had indulged in any contumacious conduct or had deliberately misrepresented or suppressed material facts so as to justify levy of penalty for “misreporting of income” u/s. 270A(9)(a) of the Act which carries a flavour of deliberate attempt to make a misleading claim. The claim of the assessee may not have found favour with the Assessing Officer for the purpose of assessment; however, rejection of a legal claim ipso facto does not warrant imposition of penalty, particularly when the explanation offered is bona fide and all primary and material facts necessary for adjudication of the issue were duly disclosed by the assessee. The observation of the Assessing Officer that non-filing of appeal against the quantum addition amounts to acceptance of concealment is tenuous and rests on a shaky foundation. It is a settled proposition of law that assessment proceedings and penalty proceedings are separate and independent proceedings. An assessee may choose not to contest the addition for several reasons best known to him, however, the same cannot automatically de jure justify levy of penalty. The penalty order has been passed in a most dismissive and laconic manner without properly appreciating and analyses the distinction between a legally unsustainable claim and deliberate misreporting or suppression of facts. Such an approach, in our considered view, cannot be countenanced in law because no element of misrepresentation or suppression could be insinuated upon. Accordingly, the penalty imposed u/s. 270A of the Act is quashed and the grounds raised by the assessee are allowed being unimpressed by the hollowed submissions of the department.
9. The facts involved in ITA No. 222/Nag/2025 are identical to the facts involved in ITA No. 223/Nag/2025 except that impugned penalty is Rs. 1,76,75,522/-. Therefore, our finding in ITA No. 222/Nag/2025 shall apply mutatis mutandis to the appeal in ITA No. 223/Nag/2025 also.
10. In sequitur, both the appeals filed by the assessee are allowed in entirety.
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